Show Me The Money — And The Costs

by Peter G. Miller
July 23rd, 2008

In Florida, the Bradenton Herald has an interesting reverse mortgage story, a column which is well-done — and a column which leads to an interesting question:

“The amount you get through a reverse mortgage,” says the story, “depends on your age, your home’s value, where you live and the current interest rates. Generally, the older you are, the more your house is worth, and the lower the interest rates are, the more you can borrow. To calculate how much you may be able to borrow with a HECM visit www.rmaarp.com. You can calculate conventional reverse mortgages on the Web sites of the financial institution you’re considering.”

All of the above is true. But in addition to the how much I can borrow I would also like to know my specific borrowing costs. That’s something not shown on the AARP calculator.

A reverse mortgage is simply a huge “negative amortization” loan. This means that the size of the loan is not the amount borrowed, it is instead the amount borrowed plus the cost of all fees, charges and interest.

Surely there must be someone in the known universe who can build a calculator which creates a cost statement for a reverse mortgage.

For example, if I join AARP I not only want to know about all about the goodies that accrue with membership, I also want to know the cost. If I buy a Hummer, I want to know about today’s exciting discounts, but I also want to know how much it will cost to operate.

In a similar way if I get a reverse mortgage, I want to know not only about the dollars which will be piled in front of me, I also want to know about the costs of the transaction.

For the full story, see: What you need to know about reverse mortgages

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